Question

MCQ: Lucy's lemonade store sells 100000 cups of lemonade each year at $3/each. Each cup of lemonade costs $0.5 in lemon, $1 in sugar, and $0.5 in labor. She serves lemonade in paper cups and pays $0.1 for each. Lucy also pays $60000 to lease the store and furniture. What is her yearly profit? Select one: O a. $20000 O b. $50000 O c. $15000 O d. -$5000 O e. $30000

Answer 1

Answer:

1) Lucy's lemonade: e. $30000

Lucy's total revenue = price * quantity = 3*100,000 = 300,000

Lucy's total costs = (variable cost = (0.5+1.0+0.5+0.1) = 2.1 * 100,000 = 210,000) + (fixed cost = 60,000) = 270,000

Therefore Lucy's profits = Total revenue - total cost = 300,000 - 270,000 = 30,000  

2) e. 100

Lowest average cost will be when MC = ATC (marginal cost equals average total cost).

2Q2 + 50Q = Q2 + 50Q + 10,000. We solve for Q:

2Q2 - Q2 +50Q -50Q = 10,000

Q2 = 10,000 So, Q = 100

3) b. 9

Optimum quanitty of cars will be when MC = 0.

81/Q2 - 1 =0

81/Q2 = 1 81 = Q2 (cross multipliacation)

So, Q = √81 = 9

4) e. 50

Break even happens when there are no profits. That is, profits = 0

Q2 -52Q +100 = 0

Q2 - 50Q - 2Q + 100 = 0

Q(Q-50) - 2(Q - 50) = 0

(Q-2) (Q-50) = 0

Q-2 = 0 or Q - 50 = 0

Q=2 or Q=50.

As 50 is greater than 2, Q= 50